There have been many changes to FHA loan policies since the publication of HUD 4000.1, but one of the most significant recent alterations to policy (at the time of this writing) involves policy on FHA condo loans.

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FHA Updates Condo Loan Requirements in 2016

November 18, 2016 - There have been many changes to FHA loan policies since the publication of HUD 4000.1, but one of the most significant recent alterations to policy (at the time of this writing) involves policy on FHA condo loans.

The FHA/HUD official site issued a press release in October 2016, with a set of changes to condo loan policy, “effective immediately” according to the release:

“The Federal Housing Administration (FHA) today announced that, under certain circumstances, it will lower its required owner-occupancy standard for approved condominium developments…FHA currently requires that approved condominium developments have a minimum of 50 percent of the units occupied by owners.”

That 50% requirement has changed-the FHA official site states that the requirement can now be “lowered to 35 percent for existing condo developments provided the project meets certain conditions.”

According to The Housing Opportunity through Modernization Act of 2016 (HOTMA) the FHA is required to “issue guidance regarding the percentage of units within an approved condominium development that must be owner-occupied. While having too few owner-occupants can detract from the viability of a project, requiring too many can harm its marketability.”

Owner-occupants, the press release says, positively affect “the financial viability of the projects and are less likely to default on their obligations to homeowner associations than non-owner occupants” hence these changes in policy for FHA condo loans.

The new policy, according to the FHA/HUD official site, includes the following alterations:

“For existing condominium developments greater than 12 months old, FHA will lower the owner-occupancy requirement to as low as 35 percent under the following conditions:

Applications must be submitted for processing and review under the HUD Review and Approval Process (HRAP) option.

Financial documents must provide for funding of replacement reserves for capital expenditures and deferred maintenance in an account representing at least 20 percent of the condo development’s budget.

No more than 10 percent of the total units can be in arrears (more than 60 days past due) on their condominium association fee payments.

Three years of acceptable financial documents must be provided.”

FHA policy for condo projects that are “proposed construction” or are considered “under construction” (to include “existing projects less than 12 months old” or are considered “gut rehab conversions”) will remain at their current owner-occupancy requirements.

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